We’ve spent a fair amount of time discussing one of the most ephemeral, incorporeal elements of working in for an investment manager - culture. Generally speaking, an investment management company is trying to buy and sell securities and generate performance in excess of the benchmark. Everyone agrees that’s the job, so, how much can the culture of the office-space even matter?
The answer is a little difficult. Imagine an investment process that is driven by rules. For instance, imagine a hypothetical Large Cap Value manager ABC who will buy equal weights of every stock in the Russell 1000 Value index where the dividend yield exceeds the current average of the index. In a single sentence, many of rules for this product are pretty well defined and investors could create a reasonable expectation for how this investment manager will perform, no matter what the culture is in the office. In fact, because of the simplicity of the rules, it is relatively unimportant who is credited as the Portfolio Manager, so long as they faithfully execute the mandated rules. For this reason, several rules-based products, including many institutionally popular index based funds, can swap Portfolio Managers in and out of their leadership role without fear of alienating investors, who generally prefer transition periods during PM replacements.
On the other side of the spectrum, there are investments managers where authority squarely rests on the shoulders of a single portfolio manager at the top of a decision making hierarchy. Somewhere between these two extremes are team based investment managers which have flatter office cultures, where decisions can be vetted by multiple portfolio managers, analysts, specialists, and risk-control groups within an organization. Over the past decade years, the trends have been pushing investment managers to move from individual high-performer, “rock-star” management styles to collaborative, open, and transparent team based management. Of course, there are still plenty of options in both investment management styles.